The number of new cases per day is very high but apparently flattening in a few states that experienced significant virus resurgence over the past week, including Arizona, Florida, and South Carolina. Meanwhile, the number of new cases per day is elevated and surging higher in a handful of other states including Nevada, Alabama, Louisiana, Mississippi, Idaho, and Tennessee. Nationally, new cases continue to rise further on average and remain on upward trajectories in a majority of states. (GS)
Apparently flattening? Thanks to NYC…
…and to reduced testing at several hot states:
ARIZONA CALIFORNIA
FLORIDA TEXAS
Meanwhile, Axios finds that
Virus sinks GOP governors in hard-hit states
It took the U.S. a little more than three months to get to 1 million coronavirus cases, then two weeks to add the most recent 1 million.
China Says It Will Have a Covid-19 Vaccine Ready This Year China’s state-owned Sinopharm, one of the first Chinese projects to start testing its Covid-19 vaccine candidates overseas, said it would have a vaccine ready for the public before the end of the year.
(…) Chinese authorities are eager to show they can help the world overcome a pandemic that has infected millions. Being first with a vaccine would go a long way toward that goal while at the same time aiming to revive confidence at home and get the domestic economy back to full speed. (…)
Sinopharm, CanSino and a private Chinese company, Sinovac Biotech Ltd., are behind three of five experimental vaccine candidates that are in the final stage of testing on people, according to the World Health Organization. (…)
Mr. Liu, the Sinopharm chairman and an engineer by training, told CCTV that he had tested CNBG’s vaccine on himself in late March, before clinical trials even kicked off in China. He said that the first two phases of testing in China showed the company’s vaccines to be 100% effective and with no cases of serious side effects.
“In the next step, everyone should be able to use it with peace of mind,†he said.
Hmmm…that will get heavily politicized, to say the least…
PANDENOMICS
In Pandemonium on March 16, I discussed the importance of strong leadership in periods of crisis. Investors may not know or understand everything happening and how and when the crisis will end, but they want reassurance that there is someone, some people, fully in charge to surely steer the ship to safety. After throwing money all over the ocean to keep the ship afloat, American politicians now need to keep it stable while maneuvering it towards calmer waters. The WSJ today argues that this ship’s crew has no clear vision about where it needs to go next.
A Phase-Four Flop The latest proposals have everything but a growth agenda.
As Washington debates how many more trillions of dollars to borrow and spend, we are in a familiar political spot. Democrats want to spend as much as they can on everything, while Republicans have no idea what they want. Guess how this is likely to turn out?
Democrats are united behind the $3 trillion Heroes Act that passed the House in May. This is on top of the nearly $3 trillion that Congress has already passed. Much of the latter hasn’t even been spent so far. But we are told Congress must double that amount or the economy will fall off a cliff on Aug. 1 when extra federal jobless benefits expire. (…)
In any case there’s almost nothing in the “phase four†proposals that would spur faster growth. The Senate GOP’s draft proposals contain Covid-specific liability protection for businesses that reopen. That would help, assuming it isn’t watered down in negotiations with Democrats. More money for testing and health care is arguably pro-growth if it helps Americans feel more secure in returning to work and school. That’s about it on the supply-side.
The rest of the GOP proposal is a $1 trillion spending bonanza on all and sundry. Public schools would get tens of billions whether they reopen or not. The White House on Thursday dropped its support for a payroll tax cut, which would have reduced the cost of hiring.
Instead the GOP wants another round of payments to individuals like the previous $1,200 checks. This is hugely expensive but does nothing for growth. The savings rate is already above 20% and most consumers have money. What they need is the economic confidence to spend it, which means the sense that the economy is growing and businesses are hiring again.
The worst idea is to extend the federal unemployment bonus for several more months. The GOP at least wants to cut the bonus from the current $600 a week that pays millions of workers more to stay at home. But the GOP draft still refers to a formula that could pay workers up to 100% of what they make by working. (…)
The goal is to keep the public feeling good about the politicians who are writing the checks. But the good feeling will expire when the money runs out, and then people will want either more checks or a stronger economy that is creating private jobs. Even the U.S. can’t borrow forever to replace the incomes lost from a buoyant economy. (…)
The larger problem here is that Republicans in the age of Donald Trump don’t know what they stand for on economics. Treasury Secretary Steven Mnuchin is a Keynesian whose idea of compromise is half of whatever Mrs. Pelosi wants. And Mrs. Pelosi’s bill is essentially a down payment on her election agenda. She’ll take what she can get now and campaign on the rest and more.
Republicans have no discernible economic agenda beyond paying people to feel better during the pandemic. They need to offer voters alternative policies that would return the economy in 2021 to its pre-Covid prosperity. That should be their phase-four offer. If Democrats reject it, as they probably would, then take it to the voters. As of now Republicans are running as Pelosi Lite.
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The Mnuchin Follies With his help, Pelosi keeps outmaneuvering Republican senators on coronavirus bills.
The concerted Republican effort to fritter away both policy and principle in these pandemic times continued apace this week—indeed, it leapt forward. Who needs Nancy Pelosi demanding more spending, more unemployment benefits and more union payoffs when Steven Mnuchin and Mitch McConnell will do it for her?
Five months after the coronavirus’s arrival, Washington has settled into a predictable loop. Speaker Pelosi’s House unveils sweeping virus legislation with vast dollar figures and progressive policy demands. Republicans argue among themselves. Treasury Secretary Mnuchin crashes in to “negotiate†the GOP back to their own 5-yard line. Senate Majority Leader McConnell reminds his caucus it is an election year and provides Mrs. Pelosi her touchdown. America goes another trillion dollars, or two, into debt. (…)
Some spending might be justified in aid of economic growth. But as the White House and appropriators now view this as a vote-buying exercise, the proposals focus on handouts and income transfers that would, if anything, prolong closures. (…)
But what about the $25 billion more the Senate would give to testing, or the $26 billion for vaccine research and distribution? Surely we need that, right? Previous legislation allocated $25 billion for testing. Some $13 billion hasn’t been used. A full $10 billion was set aside for states, localities and tribes; they’ve so far spent less than $100 million. Much of the new money for vaccines would go to the Centers for Disease Control and Prevention, still sitting on $5 billion of virus cash. And the administration already has funding for Operation Warp Speed, which covers the cost of vaccine distribution.
The mystery is who in the White House keeps deputizing Mr. Mnuchin as lead congressional envoy, given Mrs. Pelosi’s flawless record at schooling him in the art of the deal. The Treasury secretary remains relentlessly focused on what House Democrats want, rather than on what the economy or the Trump White House needs. His malleability eggs on the big spenders. His fickleness has additionally discouraged the Senate GOP from drawing lines in this debate, for fear of being undercut by Mr. Mnuchin—and inevitably Donald Trump. What’s the point of warning Mrs. Pelosi that it will never renew enhanced unemployment benefits when Mr. Mnuchin has already invited her to begin the bidding?
Republicans overall fear political fallout if they don’t act, but they put themselves in this situation. They might have spent the past two months talking about the money that has already been allocated, the huge sums that still sit in reserve, and the need to correct the mistakes of prior, hasty bills. But that would require familiarizing themselves with figures, then delivering a consistent message. Which is apparently asking a great deal.
So the default is to proceed on the precarious notion that the way to hold the White House and Senate this fall is to join Democrats in a spendathon. In fact, conservative voters are increasingly unhappy about the lasting damage Washington’s aid bills are doing to both the balance sheet and the underpinnings of the private economy. Republicans more than anything need a fired-up base this fall. Another $2 trillion blowout—one that will do little to help the economy—is hardly the way to move them to the ballot box.
Rise in Unemployment Claims Points to Faltering Jobs Recovery New applications for unemployment benefits rose for the first time in nearly four months to 1.4 million as some states rolled back reopenings because of the pandemic, a sign the jobs recovery could be faltering.
(…) Taken together, claims and benefits totals suggest new layoffs are being offset by hiring and employers recalling workers, though at a slower pace than a few weeks ago. (…)
A decreasing number of Americans receiving benefits indicates that recalls and new hiring are outpacing fresh layoffs—suggesting U.S. employers are likely to add jobs to total payrolls for the third straight month in July. (…)
The elevated level of claims indicate many workers are being laid off, perhaps for a second time, and that parents who want to work are unable to access child care, Ms. Holder said. (…)
- Kids at Home Could Put the Economy in Detention Schools adopting online or even hybrid models will make it impossible for millions of parents to work.
John Authers in Bloomberg:
For a simple gauge of how the recovery is progressing, try the following chart. It includes the Atlanta Federal Reserve’s GDPNow forecast, which aims to pull together recent data to show at what annualized rate the GDP is growing or rising at any one time. On the other scale is the total of both initial and continuing jobless claims, which are both announced weekly and give us a crude real-time measure of how the labor market is progressing. In both cases we see a spectacular fall, the beginning of what looks as though it could be a V-shaped rebound, and then a slowing into something that looks more like a Nike “Swoosh†logo.
Authers also points to declining real T-yields and the weakening dollars as signs of increasing wariness on the U.S. economy.
Goldman Sachs’ trackers “suggest that current household employment is roughly unchanged from the June survey, and that as of July 7 the unemployment rate had risen back up to 10.8% after falling to 10.5% in late June (vs. 11.1% in the June survey).â€
NBF adds:
(…) our in-house mobility index based on google data is showing an undesirable stagnation in movements since mid-June. That said, the stagnation doesn’t seem to be limited to the United States. To the contrary, today’s Hot chart shows mobility is plateauing in several other places, with no less than 5 countries among G-7 in such a situation since the beginning of the month.
A survey by Fortune Analytics, done in conjunction with SurveyMonkey, makes it pretty clear most are not. The survey found:
–Only 43% of Americans are comfortable to return to dine-in restaurants;
–Only 27% of frequent flyers are ready to board a flight again;
–Only 26% are willing to return to bars;
–And only 20% would feel comfortable attending a large public gathering.
Meanwhile, mask-wearing is up. Some 67% now say they wear masks when in public, compared to 54% back in May.
Tech companies are also suffering as Knoema reveals:
During the pandemic period, 524 startups around the world cut staff – a loss of 69,514 jobs. Around two-thirds of these job losses were in the United States.
Data indicates that coronavirus boosts robotization in Japan. For jobs that could be easily automated, there was a more than 30% year-on-year decline in availability in May and June 2020, while jobs that were not easily automated declined by just 10%. Nikkei
According to recent research 32-42% of COVID-induced layoffs in the US will be permanent, and one-tenth of all work days (one-fifth for office workers) will shift from business premises to residences in the post-pandemic world relative to the pre-pandemic situation. The Becker Friedman Institute for Economics
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Record Numbers of U.S. Home Searchers Looking to Relocate Phoenix saw the largest inflow of movers, according to Redfin
Changing priorities and the significant shift toward Americans working from home are driving more than a quarter of users on online real estate portal Redfin.com to search for a major change of scenery, according to the firm’s latest migration report released Thursday.
A record 27.4%—the highest level recorded since Redfin began reporting net migration data in early 2017—of the website’s surveyed users looked to move to another metro area in the second quarter of 2020, a three-month period that saw the coronavirus pandemic take hold in the U.S. and unprecedented lockdowns nationwide. (…)
“With the pandemic, there are a ton of out-of-towners planning to work remotely who’d like a big backyard and office space, which didn’t used to be so high on their priority lists. (…)â€
FLASH PMIs
Eurozone businesses report strongest growth for two years in July
Business activity across the eurozone rose for the first time since February, according to provisional PMI® survey data, growing at the sharpest rate for just over two years as economies continued to reopen after lockdowns implemented to prevent the spread of the coronavirus disease 2019 (COVID-19). Output expectations improved, while new order inflows also picked up and job losses eased, albeit with job cutting remaining widespread as many firms continued to scale back capacity.
The flash IHS Markit Eurozone Composite PMI rose further in July from the all-time low of 13.6 seen back in April, climbing from 48.5 in June to 54.8. This was the first reading above the 50.0 no-change level since February and indicated the largest monthly gain in output since June 2018.
Both manufacturing and services returned to growth (the latter recording the slightly stronger performance), with growth hitting 23- and 25-month highs respectively. While the rise in service sector output was the first since February, the increase in factory production was the first reported since January 2019.
Demand was also reported to have revived alongside the lifting of lockdowns, with new order inflows likewise rising for the first time since February and increasing to an extent not seen since October 2018. However, the upturn in new orders was less marked than that recorded for output, thanks in part to a further loss of export sales, leading to an ongoing depletion of backlogs of work during the month.
Although the drop in outstanding business was smaller than witnessed in prior months, a resulting surfeit of capacity relative to order books prompted many companies to continue to reduce staffing numbers. Headcounts consequently fell for a fifth straight month. While the rate of job cutting eased compared to the prior four months, it nevertheless remained faster than at any time since the start of 2013.
Job losses remained especially severe in the manufacturing sector where, besides the prior three months, the rate of job cutting was quicker than at any time since 2009. A far more modest rate of employment decline was seen in the service sector, though even here the drop in headcounts was the greatest for seven years, barring the height of the pandemic.
Looking ahead, expectations of future output continued to improve from the low plumbed in March, rising to five-month highs in both manufacturing and services, the latter reporting relatively greater prospects. Hopes of improved performance over the coming year often reflected expectations of a further opening up of economies, though companies also often warned that any gains were from historically low bases, due to business volumes having been hit hard by the pandemic.
Average prices charged for goods and services meanwhile fell for a fifth month running as firms commonly reported the need to offer discounts to stimulate sales, though the rate of decline continued to moderate from April’s near-11-year record.
The easing in price deflation was linked to rising costs: average input prices increased for a second month running, albeit only modestly. While raw material prices continued to fall, higher staff and PPE or other COVID-19 protection costs were widely reported.
By country, French companies led the upturn, reporting a second successive month of output gains, with growth surging to the fastest since January 2018. Both manufacturing and services reported the best output growth for two-and-a-half years. While French service sector companies reported the first rise in new orders since February, factory orders edged back into decline, led by a sharp drop in exports. Employment continued to fall, but the loss of jobs was the smallest seen over the past five months.
In Germany, output rose for the first time since February, increasing to an extent not seen for almost two years. A surge in service sector activity (which showed the largest gain for two-and-a-half years) was accompanied by a more modest manufacturing output increase. The factory output gain was nonetheless the best seen for nearly two years, fueled by a marked jump in new orders, including exports. Employment continued to fall, however, with overall job losses centred on the manufacturing sector.
The rest of the region outside of France and Germany also saw output return to growth, led by manufacturing, though the overall gain was more modest than seen in France and Germany. While new orders stabilised and job cutting moderated, the pace of job shedding remained marked, especially in services.
JAPAN: Downturn remains substantial despite easing further
The Japanese economy continued to struggle at the start of the third quarter, with the latest flash PMI data indicating a further sharp contraction in business activity during July. While the easing of emergency measures provided some relief, especially to the domestic sector, Japan’s growth continued to be adversely affected by subdued global trade flows and restrictions on travel. All of these factors continued to weigh heavily on demand, with total new orders falling further, dragged down by a substantial decline in new exports.
As the economy remained mired in a downturn, companies sought to contain costs and survive the pandemic by cutting jobs. Employment continued to fall in July, with factory jobs reduced at a sharper rate than seen in the service sector. Rising unemployment adds to fears that consumption may weaken in the coming months.
Any hopes of a robust recovery need to be tempered as business sentiment about the year-ahead outlook remained pessimistic on balance.
EARNINGS WATCH
We have 113 reports in, a 77% beat rate and a +12.-% surprise factor. Those 113 companies show an aggregate earnings decline of 40.5% on a 7.4% drop in revenues.
Trailing EPS are $140.58.
PANDEMONIUM
Pompeo Urges Chinese People to Change Communist Party Top U.S. diplomat urges allied countries, Chinese people to work with the U.S. to transform the party’s behavior
Secretary of State Mike Pompeo called on the Chinese people to alter the ruling Communist Party’s direction in a speech explaining the Trump administration’s full-throttle response to an assertive China.
Chinese leader Xi Jinping is a “true believer in a bankrupt, totalitarian ideology,†Mr. Pompeo said. He stopped shy of explicitly calling for regime change, urging allied countries and the people of China to work with the U.S. to change the Communist Party’s behavior.
The Communist Party “fears the Chinese people’s honest opinions more than any foe,†Mr. Pompeo said in a speech at the Richard Nixon Presidential Library and Museum in Yorba Linda, Calif. The U.S. “must also engage and empower the Chinese people,†he said.
The speech, called “Communist China and the Free World’s Future,†caps a series of addresses by senior officials in recent weeks focusing on what the Trump administration sees as the challenge posed by China and its expanding global reach. The uncompromising rhetoric has been accompanied by an uptick in administration pressure on Beijing—from sanctions to military exercises and indictments—as relations between the countries spiral downward to the lowest point in decades. (…)
Mr. Pompeo has previously made direct appeals to foreign citizens while attacking their governments, in speeches on Iran in 2018 and Venezuela in March.
Many world leaders have criticized the Trump administration’s foreign policy as unilateralist. But in recent weeks, Washington has seen key allies embrace its harder-edged approach to China. (…)
In the speech, Mr. Pompeo urged like-minded countries to exert coordinated pressure on the Chinese Communist Party. “We must induce China to change in more creative and assertive ways, because Beijing’s actions threaten our people and our prosperity,†he said. (…)
“The only way to truly change Communist China is to act not on the basis of what Chinese leaders say but how they behave,†Mr. Pompeo said. “Distrust and verify.†(…)
“Communists always lie, but the biggest lie is that the Chinese Communist Party speaks for 1.4 billion people who are surveilled, oppressed and scared to speak out,†Mr. Pompeo plans to say. (…)
How about Russia?
Russia Tests an Anti-Satellite Weapon, U.S. Officials Say Russia conducted an unusual anti-satellite test earlier this month, provoking concern that Moscow is working to improve its capability to attack American space-based systems, the U.S Space Command said.